Quantitative Finance II

Syllabus

• The Hungarian government securities market and the reference yield curve.
• Bond market conventions, yield spreads and special features of fixed-income instruments.
• Embedded options in bonds and related yield-spread measures.
• Treasury futures and the cheapest-to-deliver bond.
• Bull certificates, warrants and other option-like financial instruments.
• Modelling multiple risk factors: Cholesky factorization, the Hua He model and correlated risk-factor simulation.
• Exchange options and applications in derivative pricing.
• The Black-Scholes equation under different market assumptions and the role of the market price of risk.
• Forward options and the Black model.
• Convertible bonds: valuation, risk factors and embedded option components.
• Numerical solution of pricing equations using finite-difference methods.
• Arbitrage, hedging and speculative strategies in derivative markets.
• Mean-variance analysis: boundary portfolios and efficient portfolios.
• Fundamental theorems of asset pricing and the Hansen-Jagannathan bound.
• Two-fund separation and the Capital Asset Pricing Model.
• Arbitrage Pricing Theory and multifactor asset-pricing models.
• The zero-beta CAPM and extensions of classical asset-pricing theory.